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NO ALTRUISTS

There are 20 million non-resident Indians living in 110 different countries. Each year, remittances by NRIs contribute $ 14 billion to Indias foreign exchange kitty and there is the obvious parallel with non-resident Chinese and their contribution to foreign direct investment inflows into China, as an example of a potential India has failed to tap. After all, the new generation of migrants from India is richer than earlier waves and in the United States of America, the per capita income of NRIs is double the American average. With the recent tamasha in Delhi and Pravasi Bharatiya Divas on January 9, the government (spurred by the L.M. Singhvi committee report) seems to be falling over backwards to cultivate NRIs, although the emphasis is on north America and Britain, rather than poorer cousins in Africa or Asia. However, NRIs have invested in India through portfolio investments rather than FDI, and the balance of payments crisis of 1990-91 might not have happened had NRIs not withdrawn their deposits. Since no one is driven by altruistic motives, there is thus the issue of whether there should be preferential treatment in favour of NRIs. At the tamasha, NRIs got nothing but a Person of Indian Origin card euphemistically described as dual citizenship, although it falls short and some awards. But independent of this event, there is preferential treatment in some FDI sectors and more importantly, in deposit schemes.

Three such schemes (foreign currency non-resident, non-resident external rupee account and non-resident non-repatriable rupee deposits) account for a stock of $ 26.6 billion and have become even more attractive after complete rupee convertibility for NRIs. These have real returns upwards of 9 per cent, as compared to real returns of not more than 1 per cent in the US. It is thus a simple matter to perform arbitrage by borrowing in the US and investing in India, and rupee appreciation makes these schemes more lucrative. Is it surprising that $ 20 billion was added to foreign exchange reserves in 2002, with no more than $ 4 billion through FDI'

Historically, the Resurgent India Bonds scheme of 1998 and the India Millenium Deposit scheme of 2000 were both dysfunctional and unnecessarily expensive borrowing instruments, although one could understand the compulsions of a feared increase in global oil prices. But today, reserves of $ 71 billion are excessive, fetch returns marginally above 3 per cent and lead to upward pressure on the rupee (bad for exports), forcing the Reserve Bank of India to purchase dollars. While existing schemes cannot be terminated overnight, surely there can be a freeze on all new NRI deposits, or at least an alignment of returns on NRI deposits with global interest rates, spliced with repayment of deposits when they mature. That apart, multiple NRI schemes can be combined into a single one, with the depositor bearing exchange risk. Otherwise, pandering to the NRI lobby results in a price the country can ill afford.

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